There is an alternative

by Amanda Ramsay

When Jacob Rees-Mogg MP spoke in prime minister’s questions in January, he may as well have stepped out of a time machine and metaphorically donned a leopard-skin tabard as he banged the drum to that old Maggie favourite, of TINA – there is no alternative.

Recollections of TINA induce shudders down centre-left spines, remembering all too well the last time TINA entered political parlance in the dark, recessionary years of the 80s and 90s, huge swathes of industry decimated, home repossession rife and unemployment sky-high.

Sadly, the public largely seems to have bought into the Tory and Lib Dem line that blames Labour for the economic crisis of debt. Labour must take bold ownership of the truth over the government’s economic narrative to counter this, otherwise how will the electorate think any differently? Which of course is where campaigning on the doorstep comes-in.

It is important to note that before the global financial crisis, despite rhetoric to the contrary, the UK had the second lowest debt of G7 members and national deficit was smaller pre the 07/08 crash at 2.3 per cent of GDP than that of 3.4 per cent in 96/97, with total debt down from 42.5 per cent to 36.5 per cent.

There is many a policy alternative to lazily slashing the very fabric of our society.

Is it laziness, incompetence or purely a political steer that has historically allowed revenue and customs officials to effectively turn a blind eye to true tax levels owed by the mega rich? Apparently these public servants accept ‘guesstimates’ in the form of token payments, rather than wealthy individuals paying water-tight, accurately calculated figures of exact money owed. Based on HMRC figures, the potential revenue gap could amount to as much as £102 billion.

Other commentators have suggested the figure may be as high as £120 billion. The bulk of this gap arises from blatant evasion and avoidance. Anti-avoidance principles should be introduced into legislation, along with increasing disclosure requirements of tax havens within British protectorates, the introduction of new tax residency rules and crucially increasing resources for HMRC Inspectors. These changes could increase revenue by £20 billion per annum, according to Richard Murphy of Tax Research UK.

To save the British banking system from total collapse, after the knock-on effect of post-meltdown in the sub-prime US market, Labour wisely nationalised banks like Lloyds, Royal Bank of Scotland and Northern Rock, but how does Joe Public benefit from this tax-payer bail-out, now they effectively own these institutions?

The introduction of 0.05 per cent financial transaction tax in the UK could raise £20 billion by taxing City dealings, including trade in stocks, shares, currencies and derivatives. Government policy must be to campaign for this tax to be extended globally.

Government could also levy a one per cent football transactions tax on transfer fees to fund school playing fields. Councils could earn revenue from recycling by offering discounts on council tax for those who process their waste efficiently.

Pay levels are now at the same rate as those of 2005. Bank of England governor Mervyn King has pointed out: “One has to go back to the 1920s to find a time when real wages fell over a six year period”. If the government and private companies insist on cutting pay, renegotiated terms and conditions should include new deals with employers to give something back to the workforce in return for their cheaper labour, such as flexi-time or time off in lieu of pay cuts.

In April, changes to tax and benefits commenced that will make many citizens, especially families, worse off. As the pound in our pocket buys less and less and our work is worth less and less, a responsible government should be thinking creatively and outside the box, to make life-changing legislation to stimulate the economy, create jobs and empower young people through affordable training and apprenticeship schemes.

Practical change is needed to encourage people into work, by allowing radical but pragmatic flexibility for the first month of new employment, with payments of income support carrying on into that first four weeks, to encourage people off benefits and into work. Similarly, a month’s grace with housing benefit should be offered, to allow a new worker back on their feet without fear of missing their rent or mortgage repayment in that first month, when having to find expensive travel costs, meals away from home, and the costs of work clothing, outgoings which can weigh heavy on back-to-work employees.

Part of an economic stimulus programme could see government investing in new, affordable homes. The National Housing Federation predicts 100,000 new units would create up to 750,000 new jobs, directly in the construction industry and indirectly in the supply chain, potentially including thousands of apprenticeships for young people. The Home Builders Federation state that each new home built creates 1.5 full-time jobs, plus up to four times that number in the supply chain. This would require £6 billion in government investment – together with matched funding from housing associations.

Now is the time to reject the Thatcherite line that there is no alternative; it’s up to Labour activists and MPs alike to speak-up with a defiant: “oh yes there is.”

Amanda Ramsay is a former Labour councillor and cabinet member. This is an abridged version of a longer article for the Pragmatic Radicalism pamphlet, the full article can be found here.

Pragmatic Radicalism has been set up to stimulate debate inside and outside the Labour Party. You can find out more

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2 Responses to “There is an alternative”

  1. Tim Sewell says:

    You have some excellent points here, especially on the transition to work. The current arrangements, which expect individuals who may have been on the tiny incomes offered by benefits for years to both fund their back-to-work expenses and go without income for a month, effectively force many to commit a fraud by concealing their new status until they receive their first paycheck.

  2. den says:

    “The introduction of 0.05 per cent financial transaction tax in the UK could raise £20 billion by taxing City dealings, including trade in stocks, shares, currencies and derivatives. Government policy must be to campaign for this tax to be extended globally”

    In reality how is it going to raise that amount? A firm looking to buy one thousand currency contracts can at this time deal with London to secure those contracts, London is an attractive place to do so, if this tax were to be introduced a trader at his desk has the choice between calling London and as a consequence being forced to pay a 100,000 financial transaction tax or he can call any other financial centre in the world and pay no tax.

    A round trip (buy/sell) amounting to a two hundred thousand tax bill before profit or loss is taken into consideration is unacceptable. Short term liquidity would leave the market as operating in those time frames would be to cost intensive,brokers would widen there spreads to cover there costs combine this with changes in liquidity and you would have to see a 20-40 point move in the market before your positions break even.

    Institutions simply can not operate with these costs, corporations who are forced to exchange billions per annum will have no choice however,in fact all businesses that must exchange funds will face the huge costs. Home owners with mortgages will also get a surprise when they find that there lender borrows on a nightly basis from the interbank market to balance the books at a low interest rate per annum – 0.05% transaction tax added to that per night builds to a substantial amount over a year and that cost will rightly be handed to the consumer.

    So will the costs experienced by all corporations in fact the hole cost involved with this tax will be handed to the consumer. The only entity’s doing business here will be those that can pass the cost directly on.

    For traders/investors/dealers the UK will be impossible to conduct operations in, it sounds like a tiny amount but its not even small retail forex traders would no longer be able to conduct there business in the UK when dealing with one or two contracts.

    We do not own the banks we invested in the banks and if we own them or not introducing a tax that destroys the system is a bad idea, this tax will Never be introduced on a global level all it takes is one country not to introduce it and all business will go there. Sweden made 5% of the estimated billions per year when they gave it a go because as taxable trading volumes fell so did revenues from capital gains taxes,entirely offsetting revenues from the financial transaction tax.

    Even though the tax on fixed-income securities was much lower than that on equities the impact on market trading was much more dramatic. During the first week of the tax the volume of bond trading fell by 85% even though the tax rate on five year bonds was only 0.003%. The volume of futures trading fell by 98% and the options trading market disappeared, that was 20 years ago at a time relocation was much harder.

    We have stamp duty in the UK but take a look at how many institutions are exempt. The government makes a loss because of stamp duty. This idea has been floating around for a while, if its introduced the banks will remain in the UK to service the public s needs but the city, that huge Forex market and all the job/taxing institutions that come with it will have no choice but to leave, the cost of borrowing will go up Massively, the cost of business will do the same and taxable revenue for the UK government will disappear.

    Think again…

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